Value for Money Self-Assessment 2015/16

Value for Money Self-Assessment 2015/16

Introduction

Poplar HARCA was established in 1998 as the first urban local housing company stock transfer. Virtually all of the stock we took on was medium to high density, medium or high-rise flatted housing and had significant problems of disrepair due to historic underinvestment. Our communities had among the highest levels of deprivation in the UK, and faced particular issues with overcrowding, anti-social behaviour and the highest youth density level in Europe.

Since those early days, we have refurbished more than 4,500 homes, carried out estate improvements, taken on the transfer of another 4,000 homes and built a further 1,000 homes. We have also levered in vital infrastructure, such as the A12 crossing and a new DLR station, paving the way for future regeneration opportunities.

We now have significant regeneration schemes underway under the ‘Reshaping Poplar’ programme and are also leading on the ‘Stuck in the Middle’ strategy to redevelop some 110 hectares of land in South Poplar and the Lower Lea.

We currently own or manage 9,141 homes.

This year 89% of tenants said that we are providing Value for Money, and 91% would recommend Poplar HARCA to family and friends.

In this value for money self-assessment, we outline our return on assets, our costs and how they compare, the savings we have made and the savings we plan to make in the future. We also show how we are responding where costs are higher than anticipated and outline the VFM strategy and targets going forward in response to rent reduction.

Our strategy

Our corporate strategy for the five years to 2016 set out our vision of providing high quality homes and services in strong and sustainable communities.Our new five year corporate strategy from 2016, Creating Opportunity, sets outhow we discover progress and achieve opportunities that help our communities flourish. Achieving excellent value for money in all that we do is vital to achieving this vision: we aim to make the best possible use of resources to improve housing, neighbourhoods and opportunities for our residents, with high quality outcomes and demonstrable social returns.

In response to rent reduction, the Board has approved a Resourcing the Vision Strategy that includes:

• 5% nominal operating cost reduction for the 2016/17 budget
• Additional income generation of over £1m per annum from sweating assets further
• Letting 300 homes less suitable for social housing at local housing allowance to homeless families or at market rent when most appropriate
• Selling 100 homes based on asset management criteria where disposal adds significant value relative to a high cost void repair and future planned maintenance obligations
• Using disposal proceeds to buy new affordable housing through S106 opportunities at a ratio of 1.5 new for every old home sold

Key features of our VfM approach are:

Our VFM Strategy sets how wetarget and monitor VfM at every level of the organisation. The Board sets and monitors our VfM action plan annually.TheFinance and General Purposes Committee monitors this and reports to Board on a quarterly basis. The top level targets are set as a Financial Control Framework to enable us to ‘Resource the Vision’ and to deliver the Corporate Strategic Plan. The targets are in place to manage risk and ensure financial viability. They are:

• Achieve a 25% operating margin in 2015/16 and 2016/17
• Achieve 27.5% an 30% operating margin in 2017/18 and 2018/19 respectively
• Achieve interest cover of 125% in 2016/17 rising to 135% as we control risk and ‘move away from the cliff edge’
• Manage debt within set parameters
• Control exposure to market sales
• Manage liquidity

Residents are fully engaged with the VfM process. As described above, VFM is an ongoing agenda item on Poplar Board and Finance and General Purposes Committee agendas where a significant number of members are from the community.

Poplar HARCA has developed a model to conduct community research in neighbourhoods, using open questions to facilitate face to face conversations to gain an insight into what is most important to a neighbourhood. Listening campaigns aim to gain an understanding of what is working in a neighbourhood, what residents’ value and identify gaps and community priorities.

In the annual survey to tenants and leaseholders, we ask a VFM related question. We also include VFM related articles and initiatives in our resident newsletter and ask for residents’ VfM ideas in each issue.

All the above is ultimately information to improve the allocation of social regeneration resources.

The result of our value for money strategy is a rising operating surplus and operating margin, whilst holding our net annual expenditure on communities and neighbourhood programmes relatively stable. At the same time as this rising operating surplus, we have achieved rising resident satisfaction.

Operating margin in 2015/16 was below our 25% target. This is due in principal to additional costs incurred in the financial year on restructuring teams to deliver savings going forward, and due to higher than anticipated cost of repairing void properties. A new asset management strategy has been put in place to control void expenditure going forward in response to this. The result is we anticipate achieving 25% operating margin in 2016/17, which will require outperforming the prudent budget which achieves 23%.

The chart below shows operating margin under UK GAAP for 2011/12 to 2013/14 and under FRS102 from 2014/15.

Return on assets

Since our earliest days, robust asset management has been vital to our work. This has involved comprehensive stock condition surveys and net present value assessments, followed by the development of detailed masterplans and high quality refurbishment of the housing stock, using significant levels of capital grant to bridge the funding gap on negative value stock.

Where refurbishment was not financially viable, decisions were made to maximise the return on our land assets through regeneration by new build and the creation of mixed tenure neighbourhoods.

More recently we have further developed this approach through our Reshaping Poplar programme, which is built around a comprehensive approach to asset management and return on investment. We recognise that we now own 32% of land in the area, with another 30% of land being potentially available brownfield sites of which 8% are owned by the London Borough of Tower Hamlets. We therefore have one of the strongest regeneration opportunities in London. We are committed to achieving mixed-tenure development at higher densities than the existing stock, so maximising cross-subsidy from homes for sale whilst mitigating development and sales risk.

We have also facilitated the development of the ‘Stuck in the Middle’ strategy for the neighbouring areas of Lower Lea and South Poplar in partnership with the London Borough of Tower Hamlets, the GLA, Transport for London, the London Borough of Newham and the London Legacy Development Company. The Stuck in the Middle partnership has identified 110 hectares adjacent to our stock with the potential to build 40,000 new homes and create 13,000 jobs.On the back of this initiative we worked with LBTH to submit a bid to the GLA and have now secured a Housing Zone for the Lower Lea. The GLA are also developing an Opportunity Area Planning Framework for South Poplar. Both of these initiatives will help to lever in investment into the area, both in terms of new infrastructure and new housing, which will greatly increase the value of our existing assets.

Our current approach to maximising the return on our assets is characterised by extensive stock option appraisals based on detailed density calculations and net present value analysis.

Our work in securing wider infrastructure improvements, such as a pedestrian road crossing over an urban motorway near the Aberfeldy Estate and a new school and health centre in the St Paul’s Way area, has been key to securing the improved neighbourhoods that allow for increased values and successful regeneration.

Asset Income Management Group

Beyond large scale projects, we recognise the importance to sweat every asset in the organisation. The Asset Income Management Group was set up in 2015/16, chaired by the Chief Executive, with an aim to achieve £300,000 of additional income from existing non social housing assets. Some examples of what has been achieved to date are listed below:

Hidden Homes

Our Hidden Homes programme has been created to identify unused or redundant spaces in our buildings and convert them into new homes that can either be let or sold. In 2016 we have converted six spaces to create a one 1 bed home, four 2 bed homes and one 3 bed at a cost of £1.4m. These new homes have now been let at a combined annual rental of over £122k, representing a NPV of £422k, and have a positive impact on operating margin and interest cover. A second programme of hidden homes is now underway which will generate at least six more new properties.

Virgin Media

A one off opportunity has resulted in £400k of income (in 2015/16 only) from Virgin Media by granting wayleave and enabling upgrade to the Virgin broadband technology. This enabled Poplar HARCA to take a prudent view on a 2015/16 legal matter and provide accordingly. This is an example of being financially resilient in being able to adsorb shocks. Our Resourcing the Vision Strategy will take us further from the cliff edge to ensure we are even more resilient.

5 Alton Street Nursery

This asset has in recent years been an estate services base. An alternative asset was identified and a cost of £78k approved to convert it to a new estate services base. This has released 5 Alton Street to be let as a nursery for over £26k per annum. The project overall achieves an NPV of £240k and improves operating margin and interest cover.

Sleaford ground floor and Baring House basement commercial space

These available spaces were identified and tenants found, achieving a rent of £20k and £10kper annum for Sleaford and Baring respectively.

Risk based approach

We take a risk based approach to ensure we achieve the desired return on assets within our financial control framework. For example, we work in partnership with residential developers using land sale and barter arrangements, which means the risk is carried by the developers. We insist on overage clauses, but there is no underage. We therefore protect ourselves financially from any development losses, but share in development gains. We could take more risk and potentially make a higher financial return. However the priority is to ensure the area is regenerated and we need to ensure that that we can continue with this work in the future.

We only include conservative estimates for overages in our business plan. We do include conservative assumptions for shared ownership sales and a cash inflow from the Balfron Tower redevelopment. To test financial stability, we run a sensitivity of a 20% fall in property prices to ensure resilience and that we are operating well within our financial framework and funder’s covenants.

Examples of our success in maximising the return on our assets

A section later in this report gives detail of VFM savings achieved, which are part of maximising the return on assets.

Our communities and neighbourhoods (CaN) programme utilises community assetsand a £3m annual revenue budget to produce social returns valued at £25m a year (calculated by HACT and excluding events). An example is we supported 268 local people into jobs. This amounts to a social impact value of £4.0m and savings of £2.2m to the Treasury, based on their formula.

The regeneration of the Aberfeldy Estate, which is now onsite, where we are replacing 297 existing homes with 1,176 new homes, of which 828 are for sale, 158 are for private rent, 170 are for affordable rent and 20 are for shared ownership. We are increasing the density of the estate from an existing 160 habitable rooms per hectare to 527, increasing the value of the land and our stock holding without the need to buy additional land. The first phase is now complete and generated a profit of 28% of GDV, considerably above our original appraisal assumption of 16%. Phase 2 is on site and sales “off plan” have secured in excess of £550 per square foot. We have sold all but four of the private sale flats, and profit share from phase 2 is anticipated to be £10m for Poplar HARCA.

We have secured overage clauses in contracts to ensure that we benefit from any upturn in the market. This strategy has generated £6.6m to date including recent completions of £1.9m for Tweed House and £1.8m for Bartlett Park. The strategy is expected to generate at least £4m for the Leopold 2 regeneration scheme.

Overage rights are assigned to Poplar HARCA Projects Ltd. Poplar HARCA Developments Ltd is the joint venture partner for the Aberfeldy regeneration project. This has enabled profits to be distributed to Poplar HARCA Ltd (the Registered Provider and Charity) by way of gift aid, thus minimising corporation tax and maximising our return on investment.

Converting the Grade 2 listed Balfron Tower from a social rented block to all private sales. The red book valuation of Balfron Tower using EUV–SH is negative (£4,030,000). By changing the tenure to private sale we anticipate that the project will generate a positive NPV and reduce financial risk for Poplar HARCA.

On the Burdett Estate we are working in partnership with the London Borough of Tower Hamlets and the St Pauls Way Trust School to build a new mixed residential development that will integrate a new primary school with housing above, thereby providing much needed primary school places for our residents.

Work is progressing on our Chrisp Street regeneration project and we submitted a full planning application in June 2016. 169 existing homes are being replaced by 649 new homes and the commercial space is being increased by 16,777sq ft. This project will significantly increase the value of Chrisp St and will ensure that it continues to be the vibrant commercial heart of Poplar.

Absolute and comparative costs of delivering services

Poplar HARCA is a member of HouseMark. We use HouseMark data to compare our operating costs against 15 other housing providers (London stock transfer organisations, the local ALMO and other comparable providers with whom we share information).

Each year an independent polling company carries out a statistically representative survey of our residents. Analysis of resident satisfaction is therefore provided in a separate section below.

We have also analysed our costs using data from the Homes and Communities Agency’s global accounts against 12 of these providers to give us more information about our costs and performance. (Three of these were not in the Global Accounts data).

Peer comparisons and cost trends

Overhead cost summary

Overhead cost breakdown per direct user
KPI / Peer Group Quartiles / 2015/2016 / 2014/2015 / 2013/2014 / 2012/2013
Sample / Upper / Median / Lower / Result / Rank / Result / Rank / Result / Rank / Result / Rank
Premises / 13 / £4,831 / £5,476 / £6,449 / £2,891 / 1 / £3,623 / 2 / £3,127 / 1 / £3,752 / 3
ITC / 13 / £6,051 / £9,102 / £9,500 / £9,280 / 9 / £9,221 / 9 / £7,802 / 7 / £6,688 / 6
Finance / 13 / £3,030 / £4,170 / £4,603 / £3,123 / 5 / £2,285 / 2 / £1,903 / 2 / £1,562 / 1
Central / 13 / £8,400 / £9,973 / £14,147 / £5,653 / 1 / £7,531 / 1 / £6,287 / 1 / £6,256 / 1

Housing Management cost

Direct Housing Management - cost per property
KPI / Peer Group Quartiles / 2015/16 / 2014/15 / 2013/2014 / 2012/2013
Sample / Upper / Median / Lower / Result / Rank / Result / Rank / Result / Rank / Result / Rank
Total Housing Management / 14 / £526 / £551 / £644 / £532 / 5 / £563 / 9 / £515 / 4 / £458 / 4
Direct Housing Management / 14 / £304 / £326 / £360 / £360 / 11 / £378 / 12 / £361 / 12 / £325 / 8
Direct Rent Collection / 14 / £75 / £86 / £110 / £110 / 10 / £112 / 11 / £114 / 13 / £79 / 5
Direct Resident Involvement / 14 / £33 / £42 / £66 / £59 / 9 / £37 / 6 / £30 / 2 / £33 / 4
Direct Anti-Social Behaviour / 14 / £39 / £47 / £63 / £68 / 11 / £75 / 13 / £59 / 10 / £59 / 10
Direct Lettings / 14 / £32 / £33 / £56 / £32 / 3 / £43 / 8 / £39 / 8 / £43 / 8
Direct Tenancy Management / 14 / £72 / £93 / £109 / £91 / 6 / £111 / 11 / £120 / 12 / £111 / 11

Housing Management performance

Performance Summary / Housing Management Performance
KPI / Peer Group Quartiles / 2015/16 / 2014/2015 / 2013/2014 / 2012/2013
Sample / Upper / Median / Lower / Result / Rank / Result / Rank / Result / Rank / Result / Rank
Rent collected as % rent due (excluding arrears b/f) / 14 / 100.8% / 99.9% / 99.7% / 100.1% / TBC / 96.6% / 14 / 101.5% / 1 / 98.8% / 13
Current tenant rent arrears as % of rent due / 14 / 2.9% / 3.9% / 4.8% / 3.7% / TBC / 5.2% / 11 / 4.3% / 8 / 6.5% / 15
% of anti-social behaviour cases successfully resolved / 12 / 99.6% / 93.8% / 86.2% / 100.0% / 1 / 95.9% / 5 / 99.4% / 4 / 98.2% / 5
Rent loss due to voids as % of rent due / 14 / 0.4% / 0.6% / 1.0% / 1.3% / TBC / 1.7% / 14 / 1.1% / 11 / 1.3% / 11
Number of tenancies terminated as % of properties managed / 14 / 3.5% / 3.8% / 4.6% / 4.2% / TBC / 6.4% / 14 / 4.4% / 9 / 5.7% / 14
Percentage of all repairs completed on time / 10 / 96.4% / 95.3% / 92.0% / 99.6% / TBC / 98.8% / N/A / 98.4% / 97.8% / 2
Average number of calendar days taken to complete repairs / 14 / 5.8 / 8.5 / 12.8 / 5.5 / 5 / 6.2 / 3 / 4.2 / 1 / 5.2 / 3
Average re-let time in days (standard re-lets) / 14 / 22.7 / 26.0 / 30.4 / 20.0 / TBC / 28.0 / 9 / 25.0 / 6 / 21.0 / 5
Average cost of a void repair / 14 / £2,769 / £3,471 / £4,180 / £6,494 / TBC / £2,821 / 3 / £6,105 / 14 / £5,061 / 14

Repairs and voids cost

Resident satisfaction survey

Each year an independent polling company carries out a statistically representative survey of residents. The 2015 survey was presented to our Board in November 2015.

The headline survey results are:

87% of tenants surveyed are satisfied overall(2014: 85%, 2013: 83%, 2012: 79%, 2011: 69%)

69% of leaseholders surveyed are satisfied overall(2014: 69%, 2013: 51%, 2012: 68%, 2011: 48%)

82% of all residents surveyed are satisfied overall(2014: 80%, 2013: 79%, 2012: 77%, 2011: 59%)

Benchmarking of London tenants’ satisfaction through Housemark shows upper quartile at 79%. Through the Tower Hamlets Housing Forum and information shared from local landlords we cancompare some headline results:

tenants / leaseholders / listens / estate services / repairs
A2 Dominion / 84% / 76% / 53% / 87% / 83%
East End Homes / 83% / 57% / 51% / 65% / 60%
East Thames / 54% / 25% / 50% / - / -
Family Mosaic / 67% / 60% / - / - / 58%
Gallions / 77% / - / 65% / 66% / 77%
Gateway / 65% / 50% / 47% / 61% / 48%
Genesis / 67% / 45% / - / 56% / 77%
L&Q / 81% / - / 64% / 72% / 80%
Metropolitan / 71% / 40% / 53% / - / 61%
Notting Hill / 76% / - / 64% / 81% / 65%
Old Ford / 52% / - / - / - / -
One Housing Group / 83% / 69% / - / - / 94%
Peabody / 74% / 57% / 62% / 91% / 70%
Poplar HARCA / 87% / 69% / 90% / 84% / 79%
Southern Housing Group / 75% / 51% / 61% / - / 68%
Swan* / 81% / 53% / 67% / 88% / 74%
THCH / 80% / 60% / 67% / 73% / 72%
Tower Hamlets Homes / 77% / 52% / 55% / 73% / 69%

Tenant satisfaction has increased furtherin 2014 and we are now number one in the Tower Hamlets Housing Forum as shown above. Leaseholder satisfaction held steady at 69%, still the highest score we have achieved and joint second in the benchmark group.

The full resident survey report can be found on the Value for Money page on our website: